"Age and the Workplace - A Looming Battle?"

Sydney M. Williams

Thought of the Day

“Age and the Workplace – A looming Battle?”

September 8, 2011

The New Yorker built its reputation, in the 1920s and ’30, for its depiction of the battle of the sexes – the eternal conflicts between men and women. The UK’s humor magazine, Punch, which was founded in the mid nineteenth century and written largely for the upper classes, poked fun at the aristocracy. In the aftermath of the recent recession, we are perhaps seeing the seeds of another battle forming – what the Financial Times recently entitled: “A Battleground for the Generations.”

There are three parts to this potential battleground – one is demographic – an aging workforce; second is declining asset prices: The flat-lining of equity markets for ten years, combined with six years of declining home prices. Third, forecasts for the economy suggest any growth will be anemic. To take the economy first; the consumer, who represents 70% of GDP, is deleveraging. While manufacturing and exports may take up some of the slack, they will not be able to fully offset the effect of consumers redressing their balance sheets. Manufacturing needs greater visibility, with permanent not temporary measures taken regarding taxes and regulation. As long as the trade bills sit on the President’s desk, held captive by Richard Trumka and his unions, growth in exports will be impeded. Government spending will offset some of the decline – the path preferred by the Administration – but is restrained by the level of debt assumed in the past three years, and because of entitlement obligations made decades ago that are now coming due.

Jim Paulson of Wells Capital recently pointed out that household purchases between 1972 and 1996 grew at an annual rate of 3.2%. Between 1996 and the present, they grew at 2.8%. He projects that the rate of decline will persist, averaging between 2.0%-2.5%. Gus Faucher director of macroeconomics at Moody’s Analytics supports that notion. He argues that older people have lower incomes and consume less. Aging and slower economic growth are related.

Asset growth has not kept apace for the elderly. Christopher Herbert, director of research at Harvard’s Joint Center for Housing Studies was recently quoted in the Wall Street Journal: “Relative to the value of their homes, the amount of indebtedness if anything has gone up because house prices have fallen faster than mortgages have been reduced.” Equity markets have been flat for ten years, negatively impacting the savings and retirement accounts of baby boomers. (The S&P 500 is only 10.8% above where it was in the immediate aftermath of 9/11; it is 25.7% below where it was in March 2000.) The decline in home prices, begun six years ago is taking its toll on all, including the retired and near-retired. Last Wednesday, the Journal article quoted above, E.S. Browning quotes William Apgar of Harvard who had opined that for households with heads aged 62-85 the median mortgage debt in 2007 was “five times the 1987 inflation-adjusted median.” One consequence of this debt has been a reduction in contributions to retirement accounts. The same article quotes Fidelity Investments: “Participants aged 55-60 contributed a median 8% of salary in the first quarter of this year, down from 10% in the same quarter of 2006.”

The third element of this possible battle, is changing demographics. Like most of the world, the U.S. is aging. Americans over the age of 65 are the fastest growing segment of the population. According to the U.S. Census Bureau, 13% of Americans today (about 40 million) are over the age of 65, versus 10% in 1950; that number is expected to reach 19.3% (about 72 million) in twenty years. Those between the ages of 18-24, today represent 9.9% of the population. That percentage is expected to decline to 9.1% in twenty years. The percent of those between the ages of 25-44 is expected to decline modestly from 26.8% to 25.5%. A combination of declining birthrates and improvements in healthcare and healthier lifestyles are responsible for this change. This increase in the aging population is reflected in a recent study by Robert Lerman and Stefanie Schmidt of the Urban Institute. They explain that the population of 65-69 year-olds will grow by 37% in the next ten years. During that same time frame, the over 70 population will rise by 38%. (In contrast, the overall population is expected to grow about 12%.)

Most of today’s American jobs are in the service sector, requiring little physical exertion, a benefit for the elderly. On the other hand, technology has become far more ubiquitous, providing an edge to youth. Regardless, according to AARP, the unemployment numbers for those above the age of 55 is 6.5 percent, substantially below the national average of 9.1 percent. At the other end of the spectrum, unemployment among youth is the highest. The Bureau of Labor Statistics (BLS) puts unemployment for the age group 16-25 at 18.4 percent. Robert Lerman and Stefanie Schmidt of the Urban Institute, in a recent study, predict that over the next decade 50% of additional workers will come from the over 55 group, while only 20% will come from the youth labor force.

So we have an economic pie, which is growing more slowly being pursued by a workforce that is aging. And the elderly, the fastest growing segment, have seen their assets shrink. Mr. Lerman and Ms. Schmidt concluded that in 1996, 25-44 year olds represented 52.6% of the workforce. By 2006, that number had shrunk to 44.5% and continues to decline. At the same time, the age group 55-75+ had grown from 12% to 15.4%, and continues to increase.

This situation is not unique to the United States. “We’re concerned that if young people feel they are denied hope of jobs by older generations, there is the possibility of tension.” So was quoted Baroness Sally Greengross, a member of the British House of Lords who chairs the UK’s “Inter-generational futures all-party Parliamentary Group,” in the FT. Balancing her words, she added: “And similarly, that older people might be overlooked and considered incapable.”

The battle between youth and age has been going on for years in the political arena. Youth has been the winner in the last five Presidential elections (the longest such stretch in U.S. history,) with Barack Obama’s victory over John McCain in 2008 showing the largest age differential ever. Clinton was twenty years younger than Bush senior and twenty-three years younger than Bob Dole. Bush was two years older than his two opponents. On the other hand, during the ninety-two years between 1896 and 1988 the older candidate won 75% of the time.

An aging workforce pits experience against energy and adaptability. But companies may have little choice. Allan Hatten Yo, chief executive of Beth Johnson Foundation, an English organization that encourages companies to have younger and older workers learn from one another, is quoted in the FT article, “When you are trying to make sure a company survives you don’t necessarily have the time to invest in workforce development in the same way.”

A battle between youth and age may be developing. I am not sure. A sub-par economic recovery will accentuate trends. What we do know is that the work force is aging and that the world is in flux, giving an advantage to those people and businesses that are capable of adapting.